Annual report pursuant to Section 13 and 15(d)

COMMITMENTS AND CONTINGENCIES

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COMMITMENTS AND CONTINGENCIES
12 Months Ended
Dec. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
Litigation — Drive Shack Inc. is and may become, from time to time, involved in legal actions in the ordinary course of business, including governmental and administrative investigations, inquiries and proceedings concerning employment, labor, environmental and other claims. Although management is unable to predict with certainty the eventual outcome of any legal action, management believes the ultimate liability arising from such actions, individually and in the aggregate, which existed at December 31, 2016, will not materially affect Drive Shack Inc.’s consolidated results of operations, financial position or cash flow. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material effect on our financial results.
Environmental Costs As a commercial real estate owner, Drive Shack Inc. is subject to potential environmental costs. At December 31, 2016, management of Drive Shack Inc. is not aware of any environmental concerns that would have a material adverse effect on Drive Shack Inc.’s consolidated financial position or results of operations.
Debt Covenants Drive Shack Inc.’s debt obligations contain various customary loan covenants, including certain coverage ratios. See Note 11.
Operating lease obligations Traditional Golf leases many of its golf courses and related facilities under long-term operating leases, including triple net leases. In addition to minimum payments, certain leases require the payment of the excess of various percentages of gross revenue or net operating income over the minimum rental payments. The triple net leases require the payment of taxes assessed against the leased property and the cost of insurance and maintenance. The majority of the lease terms range from 10 to 20 years and, typically, the leases contain renewal options. Certain leases include minimum scheduled increases in rental payments at various times during the term of the lease. These scheduled rent increases are recognized on a straight-line basis over the term of the lease, resulting in an accrual, which is included in accounts payable, accrued expenses and other liabilities, for the amount by which the cumulative straight-line rent exceeds the contractual cash rent.
Traditional Golf is required to maintain bonds under certain third-party agreements, as requested by certain utility providers, and under the rules and regulations of licensing authorities and other governmental agencies. The Golf business had bonds outstanding of approximately $0.9 million as of December 31, 2016 and December 31, 2015.

Traditional Golf leases certain golf carts and equipment under operating leases that range from one to three years. Rental expenses recorded under operating leases for carts and equipment were $3.8 million and $4.6 million for the years ended December 31, 2016 and 2015, respectively.

Traditional Golf has three month-to-month property leases which are cancellable by the parties with 30 days written notice. Traditional Golf also has various month-to-month operating leases for carts and equipment. The aggregate monthly expense of these leases was $0.3 million. The future minimum rental commitments under non-cancellable leases, net of subleases, as of December 31, 2016 were as follows:
For the years ending December 31:

2017
$
31,787

2018
28,442

2019
25,362

2020
22,017

2021
18,384

Thereafter
130,284

Total Minimum lease payments
$
256,276


Membership Deposit Liability – In the Traditional Golf business, private country club members generally pay an advance initiation fee deposit upon their acceptance as a member to the respective country club. Initiation fee deposits are refundable 30 years after the date of acceptance as a member. As of December 31, 2016, the total face amount of initiation fee deposits was approximately $246.1 million.
Restricted Cash – Approximately $6.2 million of restricted cash at December 31, 2016 is used as credit enhancement for Traditional Golf’s obligations related to the performance of lease and loan agreements and certain insurance claims.